The economic turbulence facing the world today has many businesses focusing on cost control. There's a saying that “better is better before bigger is better” or businesses should get efficient before they grow.
Let's take this idea a step further. The biggest problem I have noticed in economically stressful times is that there is a cost focus on decision-making. However, you must focus on effectiveness as much as efficiency. That is, reduce the right costs and invest in the right decisions for both the short run and long run.
For example, many companies are cutting training and education; however, most employees and managers today — including those in the agricultural industry — are knowledge workers. Without information, networking and the stimulus of new ideas, businesses' long-term profits can be hindered. There's also a possibility of losing long-term productive employees.
Next, when cutting costs, managers tend to cut the small expenses or focus on minutiae. Experience shows that isolating the four or five largest expenditures and establishing a goal to reduce these costs by 3-5% can be an effective management strategy. However, some of these costs may need to increase if they're deemed to add to the short- and long-run bottom line.
Next, effectively analyzing both overhead cost and fixed costs related to asset utilization can be a strategy to improve the bottom-line profits. When times were tough in the 1980s, some producers sold expensive land, rented it back at a cheaper price and turned a profit.
Before conducting across-the-board cost cutting, determine what makes you money and what does not. This usually includes an enterprise analysis and another set of eyes such as an accountant, lender, consultant or farm-management expert to bring objectivity to management decision-making.
- The financial crisis started as a subprime meltdown, first in the U.S., then Europe and now in Asia. The lesson learned is that “low doc” and “no doc” loans, “interest-only” and “no down payment” were a train wreck waiting to happen.
- Not everyone has the right to own a home. You earn that right through prudent financial management and a sound lifestyle. Even then, bad things can happen to good people.
- Energy-efficient, simple and maintenance-free homes are the wave of the future, much like the trend in automobiles.
- The crisis started with housing first, then banking, followed by the consumer and retail sector. It spread globally, with agriculture lagging, but eventually drawn into the downturn.
- This economic crossroads will require people to re-examine their priorities in business, family and personal lives. People will be better for it.
- The next decade will result in Generation X stepping forward in leadership positions with Baby Boomers and veterans passing the baton. Will the younger generation be ready?
- The agricultural industry will be very dependent on the Asian region's economy. Domestic and global politics, technology and consumer spending will be areas to watch, with the wild card being natural resource availability.
Dave Kohl, PhD., Corn & Soybean Digest trends editor, is professor emeritus at Virginia Tech. He's published four books and over 500 articles on financial and business topics. You can reach him at [email protected].